When I was a kid in the 1960’s and 1970’s, my dad was the general manager of a large construction company in Southern California during the building boom of that time. He made a good salary for the times, and one of the perks of his position, was that he got a new company car every couple of years. I can still remember the excitement in the household when dad would bring home a glossy brochure about whatever the new car models were for the upcoming year. The company allowed him to customize the car on his own, so it would be delivered a few weeks later with all the bells and whistles he had ordered, in the color he chose.
The one I remember most was the root beer brown Mercury Cougar with what we called portholes, in the back seat, but were also called “opera windows.” I’m not sure what year it was, but we drove it from California to Nebraska and back in 1970 when my grandfather died in June of that year. This is also the one I practiced driving after I got my learner’s permit a year or so later.
I neither knew nor cared what the particulars of the sale or lease arrangements were, as my dad’s company was paying for it, and I was a kid. One of the employer’s “golden handcuffs” of that era, was a company car for their execs, which needed to be given back if you resigned or were terminated. This happened at one of the companies my dad worked for, and he had to give the car back. Then, we had to scramble to find another car suddenly. Good times.
If I had to bet a nickel, however, I would bet that these cars were leased cars. In those days, the company could write off the lease payments on their taxes, and it was a nice perk for their employees. Residential construction in Southern California was booming and the company owners were making money hand over fist. They were looking for company tax write-offs and a lease made sense to them. Besides, like I said, they had more money than sense in those days. Some of them became millionaires or even billionaires over time. Eli Broad, who was the owner of Kaufman & Broad, a huge homebuilding company (now called KB Homes) was one of my dad’s contemporaries. The main difference between my dad and Eli Broad is, Broad made a billion dollars and retired from home building by the 1970’s. My dad didn’t start his own business until some years later. As far as I know, he never became a billionaire either.
In the meantime, he was working as the general manager for other people’s businesses and got the perk of a car as part of his compensation package. This meant that he could drive a car that was much fancier than what he could have afforded on his own.
Now, I’m not a CPA or a tax expert, but I do think the rules have changed in the intervening years. A little basic online research tells me that you, or your business, cannot write off the lease payments on a vehicle any longer, but you can write off the mileage. Also, if you get a car as part of your compensation package, you must be able to show that all the mileage you write off is for business use only. I get the impression that things were just a little bit looser in the 60’s and 70’s.
These days, people lease cars for the same reason they used to do it, which is, they can get more car for their money, or they can lease a small car and have tiny payments on it with reliable transportation. I have a friend who did this for a couple of years, but the problem arose when the lease was up, and she had to come up with the money she had deferred over the previous 2 years to make sure the car company didn’t lose their profits. Also, they charged her extra for basic wear and tear, and for whatever miles she went over the agreed contract she had signed. These fees can pile up and if you haven’t saved up your money (who does that? Most people are just glad to have the lower payment amount!) you must then borrow it to pay back the leasing company.
My daughter leased one of her first cars, a yellow VW Beetle. It was the cutest little car ever, with a flower vase on the dashboard. She was thrilled to have it, but even the lease payments were a little higher than what she could afford easily, and when the lease was up, she turned it in and did the smart thing: she drove used Hondas for years, in fact, I think she still does and she’s in a position now to be able to afford a heftier car payment. I did the same thing when my old Mercedes died in 2010. After getting a new job thereafter, I thought I would need to purchase a new or used car. I got approved through the credit union for a smallish loan on a used car and I started looking around. I had my eye on some sort of used SUV, like a GMC Jimmy or something. I took it to a local mechanic’s shop to see if they thought it was road worthy. They gave me the thumbs down, and then one of the mechanics mentioned that he had a Honda for sale for $2,500, which is the amount I was planning to use as a down payment on the other vehicle. I thought about it for a minute, and then said, yes, I was interested. The thought of having NO CAR PAYMENT and not having to get a loan or a lease, was wonderful to me. I ended up purchasing that car for cash and drove it for a few years. I had a pretty good job and could have afforded a car or lease payment, but I chose not to, and I think that helped me get ahead and pay off all my other debts. This is what avoiding a car or lease payment can do for you. It can set you free over time. Just something to consider